Laws, Regulations & Annotations

Property Taxes Law Guide – Revision 2010

California Constitutional Provisions

ARTICLE XIII Revenue and Taxation

Section 2

Sec. 2. Property subject to taxation. The Legislature may provide for property taxation of all forms of tangible personal property, shares of capital stock, evidences of indebtedness, and any legal or equitable interest therein not exempt under any other provision of this article. The Legislature, two-thirds of the membership of each house concurring, may classify such personal property for differential taxation or for exemption. The tax on any interest in notes, debentures, shares of capital stock, bonds, solvent credits, deeds of trust, or mortgages shall not exceed four-tenths of one percent of full value, and the tax per dollar of full value shall not be higher on personal property than on real property in the same taxing jurisdiction.

Intangible property.—While intangible property is exempted from property taxation, such property may enhance the value of taxable tangible property, and this effect may be reflected in the valuation of the tangible property. Thus, in determining the value of property, assessing authorities may take into consideration earnings derived from intangible property, which may depend upon the possession of intangible rights and privileges that are not themselves regarded as a separate class of taxable property. ITT World Communications, Inc. v. Santa Clara County, 101 Cal.App.3d 246; Los Angeles SMSA Ltd. Partnership v. State Board of Equalization, 11 Cal.App.4th 768; GTE Sprint Communications Corp. v. Alameda County, 26 Cal.App.4th 992. Intangible values that cannot be separately taxed as property may be reflected in the valuation of taxable property. Thus in determining the value of taxable property, assessing authorities may take into consideration earnings derived therefrom, which may depend upon the possession of intangible rights and privileges that are not themselves regarded as a separate class of taxable property. Stanislaus County v. Assessment Appeals Board, 213 Cal.App.3d 1445; Freeport-McMoran Resource Partners v. Lake County, 12 Cal.App.4th 634; Watson Cogeneration Co. v. Los Angeles County, 98 Cal.App.4th 1066. Intangible values that cannot be separately taxed as property may be reflected in the valuation of taxable property. In determining the value of property, assessing authorities may take into consideration earnings derived therefrom, which may depend upon the possession of intangible rights and privileges that are not themselves regarded as a separate class of taxable property. Thus, in a real property case, intangibles associated with the realty, such as zoning, permits, and licenses, are not real property and may not be taxed as such. However, insofar as such intangibles affect the real property's value, for example by enabling its profitable use, they may properly contribute to an assessment of fair market value. American Sheds, Inc. v. Los Angeles County, 66 Cal.App.4th 384.

The record contained substantial evidence that a cable television service had a value apart from its franchise and tangible assets. Whether labeled as a subscriber list, going concern value, or enterprise value, the record supported a value that was attributable to the operational nature of the service. These intangibles related to the business and related to real property only in their connection with the business using them. Thus, although intangible values may be reflected in the value of a possessory interest, they are not necessarily subsumed as a matter of . Shubat v. Sutter County Assessment Appeals Board, 13 Cal.App.4th 794. Car rental firms rights to do business at airports and their environs, other than the counters and reserved parking lots in their use and possession, were valuable business opportunities, but were intangibles not subject to property tax. However, valuation of the possessory interests in the counters and parking lots may consider their airport locations as contributing to and enhancing their independent value as business properties. Los Angeles County v. Los Angeles County Assessment Appeals Board No. 1, 13 Cal.App.4th 102.

Right to engage in business.—A cable television company's right to engage in the cable television business was not a part of its real property possessory interest for assessment purposes, since such right constituted an intangible asset that was exempt from taxation under the California Constitution. The right to engage in the cable television business is protected by free speech guaranties and is exempt from property taxation unless the state can show an overriding governmental interest beyond mere revenue raising. However, in assessing the value of the company's possessory interest, the company's intangible right to do business could be considered, since without this right the possessory interest would have little or no market value. Stanislaus County v. Assessment Appeals Board, 213 Cal.App.3d 1445. The county board properly concluded that a cable television service's right to do business had a separate value, and was an intangible asset exempt from property taxation. Moreover, the service's favorable franchise terms had no value separate from the right to do business, but were subsumed within and enhanced the value of its right to do business. Shubat v. Sutter County Assessment Appeals Board, 13 Cal.App.4th 794.

Enterprise value.—Under the income approach to valuation, only earnings from the property itself or the beneficial use thereof are to be considered. Income derived in large part from enterprise activity may not be ascribed to the property. When no sound basis appears for apportionment of income as between enterprise activity and the property itself, then a method may be employed which imputes an appropriate income to the property. Freeport-McMoran Resource Partners v. Lake County, 12 Cal.App.4th 634.

A State Board of Equalization rule enumerating the permissive modes of assessing possessory interests is not exclusive, and when no sound or practical basis appears for apportionment of income between enterprise activity and the property itself, a method may be used which imputes an appropriate income to the property. After assigning amounts to the tangible assets, the county board reasonably allocated one third of the residual value to the taxable possessory interest and the remainder to other intangibles. Shubat v. Sutter County Assessment Appeals Board, 13 Cal.App.4th 794. Utilization of a stadium food and beverage franchisee's entire income flow, adjusted for certain expense factors, as the basis for property tax valuation was improper where a large part of its income was clearly based on its enterprise value, as distinguished from the value of its use of taxable property under agreement with the stadium owner. Some portion of the profitability of the franchisee's operation could reasonably be attributed to the taxable property it utilized, and an imputed fair rental value could be determined. Service America Corporation v. San Diego County, 15 Cal.App.4th 1232.

Decisions Under Former Article XIII, Section 14.

Personal property.—The term "tax burden" as used in this section has reference to the ratio which the tax bears to the value of the property. Consequently, the assessment of personal property at a greater percentage of market or cash value than real property is not violate of this section when the difference in assessment is offset by the fact that a greater rate is applied to real property. Dawson v. Los Angeles County, 15 Cal.2d 77.

A leasehold interest in tax-exempt land is not personal property within the meaning of this section. Forster Shipbuilding Co. v. Los Angeles County, 54 Cal.2d 450.

The power of the Legislature to classify personal property for purposes of preferential tax treatment or exemption does not abridge the assessor's constitutional duty to uniformly assess and to equalize assessments of personal property which has not been so classified. Hewlett-Packard Co. v. Santa Clara County, 50 Cal.App.3d 74.

Possessory interest in personal property.—A possessory interest in government-owned personal property is not a taxable possessory interest in the absence of legislative authorization. General Dynamics Corp. v. Los Angeles County, 51 Cal.2d 59.

Liquor licenses.—The provisions of this section granting power to provide for taxation of intangible personal property listed therein by implication exclude items of intangible personal property not specified. Liquor licenses, not being included in the list of intangibles specified, are therefore not subject to ad valorem taxation as personal property. Roehm v. County of Orange, 32 Cal.2d 280.

Copyrights.—A copyright interest, being an intangible and not a solvent credit, is not subject to an ad valorem personal property tax because it is not one of the intangibles specifically enumerated in Article XIII, Section 14, Michael Todd Co. v. Los Angeles County, 57 Cal.2d 684.

Title plant*.—Although, with certain exceptions, intangible personal property is exempt from taxation, and although, physically, a title insurance company's "title plant" of the history of real property parcels in a county consist merely of paper records, the "title plant" is subject to an ad valorem tax computed by taking into consideration the earnings derived from the intangible information contained therein. Western Title Guaranty Co. v. Stanislaus County, 41 Cal.App.3d 733.

*Note.—Revenue and Taxation Code Section 997 prevents inclusion of or consideration of the intangible value of information or data recorded on tangible material of persons engaged in a business or profession, including title plants, after 1972.

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